Exchange Rate Volatility Threatens Ghana’s Inflation Target, Warns Economist
Economist Dr. Theo Acheampong has raised concerns that exchange rate fluctuations could cause the Ghanaian government to miss its end-of-year inflation target of 15%.
Analyzing the revised macro-targets in the Mid-Year Budget Review, Dr. Acheampong expressed optimism about achieving the revised Overall Real GDP Growth rate of 3.1%, up from 2.8%, but cautioned that inflation control could be compromised.
Impact of Exchange Rate on Inflation
Dr. Acheampong highlighted that duties and taxes on imported goods, typically indexed in dollars, are driving up prices.
“Most of the charges on the ICUMS platform are charged in dollars. This means that when the cedi depreciates, importers will pay more at the ports,” he explained. He argued that these costs are passed on to consumers, thereby increasing inflation.
“The importers will not bear that cost and will pass on the extra cost at the ports to consumers. This means consumers will pay more,” Dr. Acheampong noted, adding that such dynamics could undermine efforts to reduce inflation.
Revised Macroeconomic Targets
The government has announced key revisions to its macroeconomic fiscal targets for 2024. During the Mid-Year Budget presentation in parliament on July 23, 2024, Finance Minister Mohamed Amin Adam revised the Overall Real GDP Growth rate upwards to 3.1% from 2.8%.
However, the end-of-year inflation target remains unchanged at 15%. The Non-Oil Real GDP Growth rate was also revised upwards from 2.1% to 2.8%.
Nominal overall GDP has been adjusted from ₵1,050 billion to ₵1,020 billion, while Non-Oil GDP was revised from ₵979 billion to ₵977,093 billion.
Fiscal Stability and Revenue Projections
Dr. Amin Adam stated that the Primary Balance on Commitment basis is maintained at a surplus of 0.5%, aligning with the IMF-supported PC-PEG objectives. Gross International Reserves, including oil funds and encumbered assets, are expected to cover at least 3.0 months of imports.
The government has also revised Total Revenue and Grants upward by 0.5% to ₵177,220 million (17.4% of GDP) for 2024, up from the previous target of ₵176,414 million (16.8% of GDP).
This revision reflects an increase in Non-Oil Non-Tax Revenue, which is now projected at ₵15,638 million (1.5% of GDP), up from ₵14,837 million (1.4% of GDP), largely due to dividends from interest accrued in the ESLA accounts.
Despite the positive adjustments in GDP growth and revenue, Dr. Acheampong’s concerns about inflation underscore the challenges the government faces in stabilizing the economy amid exchange rate volatilities.
